Sallie Mae and KKR have entered into a multi‑year private‑credit partnership that will see KKR acquire an initial seed portfolio of private education loans and commit to purchasing a minimum of $2 billion in newly originated loans each year for a three‑year term. The capital will come from KKR’s credit funds and its asset‑based finance (ABF) strategy, allowing Sallie Mae to keep customer relationships and servicing responsibilities while earning ongoing fee income for program management and industry expertise.
The deal marks a deliberate shift for Sallie Mae toward a capital‑light, fee‑based business model. By off‑balancing loan origination risk, the company frees up balance‑sheet capital that can be redeployed for growth initiatives, share buybacks, or dividends. The partnership also creates a new, predictable fee stream that complements Sallie Mae’s existing loan‑sale model, improving return on equity and financial resilience in a market where private‑loan demand is expected to rise under forthcoming federal student‑loan reforms.
Sallie Mae’s recent earnings provide context for the partnership. In Q3 2023 the company reported GAAP net income of $25 million, a sharp decline from $73 million in Q3 2022, and in Q2 2023 net income fell 23% to $261 million from the prior year. These results, coupled with higher non‑interest expenses and lower non‑interest income, signaled pressure on profitability and prompted the company to pursue a strategy that reduces balance‑sheet exposure while preserving revenue growth.
CEO Jon Witter said the partnership “unlocks off‑balance‑sheet capital efficiency, creates a more resilient, capital‑light earnings profile, and lets us serve more students and families.” Witter emphasized that the fee‑based model will allow Sallie Mae to scale its servicing capabilities without the capital constraints that have weighed on its legacy loan portfolio.
Managing Director Avi Korn of KKR’s ABF team noted that the deal “aligns with our strategy to deploy long‑term, flexible capital into high‑quality, scalable financial institutions.” Korn highlighted that KKR’s ABF strategy, which recently closed a $6.5 billion fundraise, is well positioned to support Sallie Mae’s growth in the private‑loan market.
The partnership positions Sallie Mae to capture additional private‑loan volume that is expected to grow as federal reforms tighten loan caps and alter eligibility for federal programs. By partnering with a global investment firm that has deep expertise in credit and asset‑backed financing, Sallie Mae can expand its originations capacity while maintaining its strong underwriting and servicing track record, thereby strengthening its competitive position in a rapidly evolving market.
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